ATO Confirms Tax Treatment of Indiana Resources’ $0.05 Capital Return

Background to the Capital Return

Indiana Resources Limited (ASX, IDA), an exploration company focused on rare earths, gold, and base metals in South Australia, recently received a binding Class Ruling from the Australian Taxation Office (ATO) regarding its $0.05 per share capital return paid on 15 August 2025. This capital return followed the company’s disposal of its Ntaka Hill Nickel Project licence in Tanzania, with surplus proceeds distributed back to shareholders.

Key Tax Outcomes for Shareholders

The ATO ruling confirms that the capital return is not treated as a dividend for Australian income tax purposes. For Australian resident shareholders holding their Indiana shares on capital account, the ruling mandates a reduction in the cost base of each share by $0.05. If the original cost base of a share is less than $0.05, shareholders will realise a capital gain equal to the difference, which may qualify for the capital gains tax discount if holding period requirements are met.

Foreign resident shareholders benefit from a more favourable treatment, as any capital gain arising from the capital return is disregarded for tax purposes, provided the shares are not used in an Australian permanent establishment or subject to specific residency rules.

Implications for Indiana Resources

The ruling also clarifies that Indiana Resources itself faces no adverse tax consequences from the capital return. The payment was made from the company’s available cash balance and debited against its share capital account without cancelling any shares or altering shareholder proportional interests. This careful structuring ensures the company’s capital management strategy remains tax efficient and transparent.

Context and Shareholder Guidance

Indiana’s capital return follows a prior unfranked special dividend of $0.05 per share paid in December 2024, marking the first distributions to shareholders since 2016. The ATO ruling provides much-needed clarity for investors on the tax treatment of these returns, encouraging shareholders to consult their tax advisors to understand the implications specific to their circumstances.

Overall, this ruling underscores Indiana Resources’ commitment to prudent capital management and shareholder value, while navigating complex tax regulations with transparency.